Evaluating the Impact of Dividend Restrictions on Euro Area Bank Market Values

Curse and Blessing: The Effect of the Dividend Ban on Euro Area Bank Valuations and Syndicated Lending

“…In this paper, we conduct an extensive analysis of the valuation impact of the dividend ban on a sample of 62 euro area banks. We confirm the findings of Andreeva et al (2023) and extend their analysis in different directions. Employing a difference-in-differences methodology, we introduce non-bank financial corporations as a control group.…”

“…Next to dividend cuts made by individual banks, research shows that a sector-wide ban on dividends is also detrimental for banks' market valuations. Regarding the ECB dividend ban in March 2020, Andreeva et al (2023) find that euro area banks experienced a significant negative impact of 7% compared to non-financial corporations (NFCs). This negative impact can be attributed to a delay in cash flow streams to shareholders, and indirectly to higher perceived risk (increase in the bank equity risk premium).…”

Supervisory Policy Stimulus: Evidence from the Euro Area Dividend Recommendation

“…The supervisory dividend restrictions can then be justified and timely in the face of an economic downturn to induce banks to conserve capital and provide lending to the real economy. It is worth pointing-out that dividend restrictions can have also short-term negative effects on banks' stock prices, in particular when the lifting of restrictions is uncertain, see for instance the recent evidence in Andreeva et al (2021) and Matyunina and Ongena (2022), as well as previous work by Lee (1995). 4 More generally, dividends are considered as the most important form of payout and enterprises tend to distribute a substantial percentage of their earnings as dividends, Allen and Michaely (1995).…”

Bank Dividend Restrictions and Banks’ Institutional Investors

“…Both studies find a positive effect of lending to non-financial corporations. Lastly, Andreeva et al (2021) analyze the impact of this regulation on bank equity valuations using also the supervisory data on distribution plans as Dautović, Gambacorta and Reghezza (2023). They find a negative impact on banks' equity valuations, which is mostly driven by the uncertainty of future distributions and by banks that planned to pay out dividends but cannot live up to investors' demanded returns.…”

“…),Hardy (2021) andAndreeva et al (2021) analyzed the impact of the announcement of the dividend restrictions across different jurisdictions. They all find that the announcement had a negative impact on the stock returns of banks.…”